Learning with Heterogeneous Expectations in an Evolutionary World

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Learning with Heterogeneous Expectations in an Evolutionary World

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Guse, E.

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Eran Guse

Abstract

This paper studies a game theoretic model where agents choose between two updating rules to predict a future endogenous variable. Agents rationally choose between these predictors based on relative performance. Conditions for evolutionary stability and stability under learning are found for the Nash solutions and corresponding parameter equilibria. Stability conditions are contingent upon parameter values and the initial distribution of heterogeneity. However, when the cost of using the more advanced updating rule is sufficiently large, all agents will asymptotically use the more parsimonious, or Minimum State Variable (MSV), updating rule.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0547.

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Length: 27
Date of creation: Oct 2005
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Handle: RePEc:cam:camdae:0547

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Paper
- Eran Guse, 2004. "Learning with Heterogeneous Expectations in an Evolutionary World," Computing in Economics and Finance 2004 99, Society for Computational Economics. [Downloadable!]

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-29 (All new papers)
NEP-EVO-2005-10-29 (Evolutionary Economics)
NEP-GTH-2005-10-29 (Game Theory)
NEP-MAC-2005-10-29 (Macroeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
- Hommes, Cars & Sorger, Gerhard, 1998. "Consistent Expectations Equilibria," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 287-321, September. [Downloadable!]
Evans, George W & Honkapohja, Seppo & Marimon, Ramon, 1996. "Convergence in Monetary Inflation Models with Heterogeneous Learning Rules," CEPR Discussion Papers 1310, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Evans, George W. & Honkapohja, Seppo & Marimon, Ramon, 2001. "Convergence In Monetary Inflation Models With Heterogeneous Learning Rules," Macroeconomic Dynamics, Cambridge University Press, vol. 5(01), pages 1-31, February. [Downloadable!]
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Other versions:
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Other versions:
- George W. Evans & Garey Ramey, 1995. "Calculation, Adaptation, and Rational Expectations," University of California at San Diego, Economics Working Paper Series 95-10r, Department of Economics, UC San Diego.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Eran Guse, 2004. "Expectational Business Cycles," Money Macro and Finance (MMF) Research Group Conference 2004 97, Money Macro and Finance Research Group. [Downloadable!]
Other versions:
- Guse, Eran, 2004. "Expectational business cycles," Research Discussion Papers 19/2004, Bank of Finland. [Downloadable!]
Orlando Gomes, . "Volatility, Heterogeneous Agents and Chaos," The Electronic Journal of Evolutionary Modeling and Economic Dynamics, IFReDE - Université Montesquieu Bordeaux IV. [Downloadable!]
Other versions:
- Orlando Gomes, 2004. "Volatility, Heterogeneous Agents and Chaos," GE, Growth, Math methods 0409010, EconWPA. [Downloadable!]

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